Major changes proposed for Citizens

February 7, 2013|By Maria Mallory White, Staff writer

If you're a Citizens Property Insurance Corp. policyholder, big rate changes may be on the horizon. And if you're not, you may eventually be off the hook, no longer having to help shore up the state-backed insurer if a big storm hit Florida.

A draft proposal presented at a Senate committee Wednesday aims to restructure Citizens. If the ambitious bill is approved, it could overhaul Florida's homeowners insurance market.

The bill would return Citizens, which has a large number of policies in South Florida, to its original insurer-of-last-resort mandate. Broward is home to 197,009 Citizens policies, and there are 137,292 in Palm Beach.

"Let's face it: Citizens is a double whopper with bacon and cheese on it," said Sen. David Simmons, R-Altamonte Springs, who heads the Senate Banking and Insurance Committee. With the adoption of this bill, he said, "It'll look like the kind of lean, healthy residual market insurer it was meant to be."

Locke Burt, a former senator who is chairman and president of Security First Insurance Co., told the committee that many agents don't have the ability to shop for coverage throughout the property-insurance market, which can help lead to policies going to Citizens instead of private insurers. Also, he said many consumers don't know how to shop for coverage.

Citizens policyholders, particularly in areas such as South Florida, have long argued that they cannot find coverage on the private market and that Citizens' premiums are too high.

But Burt, who gave a lengthy presentation Wednesday, said insurers are willing to take many policies that are winding up in Citizens and a large number of customers would not have to pay more for coverage. Simmons echoed the insurance executive, saying it is a "myth that doing what we're doing is going to raise rates."

And though it's not yet clear exactly how much it would affect rates, among the changes the bill calls for:

-- A new approach to the way Citizens rates are determined for new policies, houses valued at more than $300,000 (there was discussion to raise it to $400,000) and non-homesteaded and commercial properties.

-- State law says a homeowner is not eligible for a new Citizens policy if coverage is available from a private insurer at a relatively similar price. That price is up to 15 percent above what Citizens would charge.

-- Insurance companies may use an "insurance inflation factor" to raise premiums faster than currently allowed by law.

-- Insurance companies, including Citizens, may charge homeowners additional fees to help cover the cost of backup insurance.

-- Insurance companies can charge rates that are higher than what regulators traditionally allow, if homeowners agree to the higher charges

-- Creating a "clearinghouse" that would allow private insurers and agents to write policies for people who have applied for Citizens coverage or are renewing coverage. As part of that, Citizens customers would be required to submit new applications for coverage after three years with the state-backed insurer.

The goal of the yet-to-be-filed bill is to dramatically reduce the size of Citizens and so the financial liabilities associated with it. Over the last several years, Citizens' coverage has swelled to include about a quarter of the state's homeowners' policies. Lawmakers worry that if a major storm hits, the company would not be able to pay its claims and all Floridians — even those who are not Citizens customers — would be forced to pick up the tab through mandated assessments.

The move to market-based rates signals the end of lawmakers' tolerance for Floridians subsidizing Citizens policyholders through the company's discounted rates in high-risk areas.

In the past, bills dealing with Citizens and the broader property-insurance market have been politically volatile, as lawmakers grappled with proposals that would raise homeowners' premiums. Citizens is the state's largest property insurer, with roughly 1.3 million policies as of Dec. 31, and does large amounts of business in areas that are prone to hurricanes and sinkhole claims.